How Federal Employees Can Better Prepare For Retirement

Are you prepared for retirement? It’s never too early to ask the question. Whether you have been working for decades or are just starting out your career, it is important to take the necessary steps to ensure you will be able to live comfortably in retirement. A fluctuating economy, multitude of investment choices, and general lack of financial understanding can make it difficult to properly plan, but these factors don’t have to delay your retirement.

In this card stack, Government Business Council, the research arm of Government Executive, presents a snapshot of federal employees’ retirement preparedness, some of the big questions that arise during the retirement process and the resources available to help answer them. See how comfortable federal employees feel for the next stage of their life, and learn the steps you can take to be better informed and better prepared for retirement.

We hope this series spotlights the benefits that proper planning can have on your life after work, and provide helpful suggestions for how to navigate the process going forward.

Do federal employees feel prepared for retirement?

In a recent 2017 GBC survey of federal employees, a majority of respondents (59%) said the desire for leisure and new interests factored into their decision to retire. Friends and family were cited by 46% of respondents, and 33% said they felt they had saved enough.

Not everyone feels prepared for that step, however. In 2017, nearly 60% of federal employees said they have gaps in their retirement preparedness, saying they feel only somewhat, not very, or not at all prepared. Additionally, the process of saving for retirement is getting more difficult for each generation. A 2016 study found that more than half of pre-retirees expect to have a more difficult time saving than their parents and grandparents did, with healthcare costs, illnesses and disabilities, and changes to social security cited as their primary concerns.

What can we do raise assurance among pre-retirees that their retirement plans aren't in jeopardy?

How do federal organizations help their employees prepare for retirement?

How do federal employees prepare themselves for retirement, and what resources can organizations offer their employees to help with education and planning?

While a majority (68%) of survey respondents said their organization provides retirement classes and workshops, our survey finds that far fewer have access to personal counseling (31%), external resources (24%), professional financial planning and assistance (11%) or career fairs (4%). A total of 11% said their organization does not provide any retirement resources. While this is possibly the case, it could also indicate respondents’ frustration at not being able to access the resources that are provided.

According to our survey, federal employees have mixed opinions about the retirement resources provided by their organization: whereas 30% show some degree of dissatisfaction with such services, 45% are either somewhat (24%) or altogether satisfied (21%) in their evaluations. Meanwhile, a plurality of 26% stake their opinions in the middle, indicative of the mixed sentiment on this matter.

How federal employees can better plan for retirement

Even for those who feel dissatisfied with the resources their agency provides, there are several steps federal employees can take to prepare themselves for retirement.

In her Government Executive column on retirement planning, Tammy Flanagan writes: “The first and best way (to achieve a financially secure retirement) is to plan ahead and begin to visualize your retirement in the early years of your career.” She suggests federal employees should begin by evaluating their spending habits, and whether those habits will change in retirement. This can help determine how much income it will be necessary to replace in retirement.

Many Americans have low levels of basic financial literacy, which presents complications in the retirement planning process. A 2016 GAO report found that Americans lack “an understanding of fundamental investment concepts, such as the benefits of compounding interest and risk diversification and the potential impact of inflation.” In some cases, American workers nearing retirement admitted that they were either guessing at their savings needs, or had conducted no meaningful retirement planning at all.

How much money will you need to live comfortably in retirement?

Realistically, how much money will you need to live comfortably in retirement? Not surprisingly, it partly depends on when you choose to retire. A 2016 GAO report found that while some expenditures, such as housing, remain constant across retirees of all age levels, the amount of retirement income devoted to other expenses can vary between age groups.

According the report, household spending patterns differ by age with mid-career households on average spending about 20% more than older households. Spending peaks between the ages of 40 and 50, then gradually declines. Healthcare is the only expense that increases for older groups. The GAO report found that older retiree households allocate 15% of their total spending on healthcare — more than double that of mid-career households.

The report also found that household size was reflected in spending priorities, with the average household size for mid-career households equaling about 2.9 people, versus 2.1 people for young retiree households, 1.7 for mid-retirees and 1.5 for older retirees.

When can you retire?

Your minimum retirement age and the requirements for securing voluntary immediate retirement benefits depends on the retirement system your agency falls under — the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS).

Retirees under CSRS, which only consists of a pension plan, will see a greater defined benefit — up to 80% of their income—than those under FERS. FERS, which is a pension program combined with a Thrift Savings Plan (TSP) and Social Security, allows for great control and portability, facilitating a more gradual transition into retirement. Under FERS, employees can delay drawing TSP and Social Security earnings to allow for additional employment after leaving government if they wish to continue building retirement capital.

For those interested in finding out more, OPM lists the age requirement and the years of service required to collect an immediate annuity commencing within 30 days of your separation under both CSRS and FERS.

Should you take a buyout?

In April, Government Executivereported that the Environmental Protection Agency (EPA) would be offering buyouts and early retirement incentives to its employees as part of its effort to restructure and reduce its workforce. Given the current Administration’s ongoing plans to restructure the executive branch, now might be the right time to consider whether a buyout is in your best interest.

Should you take a buyout? There are many factors to consider in this decision. Tammy Flanagan recommends that employees weighing such an option should first understand two important programs: Voluntary Early Retirement Authority (VERA), and Voluntary Separation Incentive Payment (VSIP). Both VERA and VSIP are tools that help agencies meet restructuring and downsizing goals.

To be offered a buyout under VERA authority, employees must be over 50 years old with at least 20 years of federal service, or have at least 25 years of Federal service at any age. Benefits would be allocated in largely the same way as a normal retirement, with a reduction for those under 55 years old and enrolled in CSRS. FERS benefits aren’t paid out until the employee reaches retirement age. VSIP, a more traditional buyout, offers employees a lump sum to exit government service.

In a situation where one of these options presents itself, do you know how to respond? To help make your decision, it’s important to take stock of your financial preparedness by factoring in a number of variables: Social Security eligibility, TSP investments, and FERS supplements, to name just a few. Additionally, Flanagan suggests you should also consider how the decision will affect your net income, and whether you are prepared for the life changes that retirement will introduce.

What federal employees can expect to receive in retirement benefits

To have an idea of how much you’ll receive in retirement, you can calculate your benefit using basic formulas provided by OPM. OPM provides formulas for both FERS and CSRS, or you can use an online calculator.

There are, of course, some questions only you can answer. Tammy Flanagan reports that the most accurate estimate of your retirement benefit will come from your agency’s human resources office. Because these offices can easily become overloaded with requests, it’s important to plan ahead. Be aware of the types of reductions and common withholdings from your benefit, such as reductions for age, survivor elections, and unpaid deposits under CSRS.

How the Thrift Savings Plan works

How does the Thrift Savings Plan (TSP) work? TSP is the third leg of the FERS retirement system, after the basic annuity and Social Security benefit. Tammy Flanagan describes TSP as the “key to financial security in retirement and the ability to retire at a younger age.”

TSP is a defined contribution plan, similar to a 401(k), in which retirement benefits from your TSP account are dependent on the amount that you—and your agency, if eligible—have contributed to your account and the subsequent earnings. Federal employees have complete control over the amount of money they save and where they invest it. Unfortunately, 14 out of 100 FERS employees do not contribute to their TSP.

Having so many options can be overwhelming, especially for FERS employees not familiar with the TSP. The TSP website provides a basic overview of the program, complete with useful information FERS employees can reference to determine objectives, as well as to help with decisions about how much they should invest, and where.

When should you claim your Social Security benefit?

When should you claim your Social Security retirement benefit? This is a difficult decision for many. Even the most informed decision is going to have an inherent element of calculated risk, since there is no way for anyone to know just how long they’re going to live post-retirement.

Here’s what we do know: Almost everyone must claim their Social Security benefit between the age of 62 and 70—with 62 being the first year you can take an early reduced benefit. Retirees aged between 65-67 years (depending on the year you were born) can start receiving a full benefit. You can delay receiving benefits up to age 70.

At the most basic level, Tammy Flanagan states that deciding when to begin claiming Social Security “boils down to a matter of receiving a smaller benefit for a longer period or a larger benefit for a shorter period.” Knowing your ideal retirement budget, health, and life expectancy can help you in making the most informed decision possible.

Should you enroll in a long term care insurance program?

Should you enroll in a long term care insurance program? This decision is a major choice for federal employees. As Tammy Flanagan states, “long term care insurance is expensive. But so is long term care.” The Federal Long Term Care Insurance Program was created in 2000 to offer coverage to federal employees, retired federal employees, members of the military, annuitants, and qualified family members.

Long-term care “provides a resource to pay for this type of care you probably don’t want to think about needing: assistance with activities of daily living (including dressing, bathing, using the toilet, transferring from a bed to a chair, incontinence, and feeding), or supervision due to significant mental impairment.” Other factors to consider in any long term care insurance decision include your family’s availability and ability to help.

According to statistics from the Department of Health and Human Services, someone turning 65 today has almost a 70 percent chance of needing some type of long-term care service and support in their remaining years. Luckily, there are organizations that help families make sense of the complicated process of retirement planning and long term care in the federal marketplace and environment. Ideally, long term care should act as an insurance program in a larger retirement strategy.

Navigating the retirement application process

How do you navigate the complicated retirement application process?

Tammy Flanagan recommends planning ahead. Your agency compiles the paperwork that must be mailed to the Office of Personnel Management (OPM) to begin the process. Submitting your application at least 30 to 90 days in advance of your retirement will give them enough time to compile and send the necessary documentation to OPM. It’s important to keep in mind that OPM receives twice as many retirement applications in January than at any other time of year.

And it is a lot of paperwork — applications must be a complete, original form, signed by the applicant in ink, and dated appropriately. Making sure all of your paperwork is complete and accurate will expedite the process. OPM estimates that 23 percent of all claims are missing one or more records, and 11 percent are not received within the first 30 days following the retirement of a federal employee.

Planning for the next chapter of your life

Proper retirement preparation requires asking yourself a series of questions that are difficult to ponder, especially for younger employees. When should I start investing? How much should I invest? How much money will I need to live in retirement comfortably? How is my health? Will I need long term care insurance? Will my family be protected in the event of an untimely death?

Luckily, there are resources available both online and within your agency that can help you be better informed, invest in the right ways, and navigate the complicated retirement process. With the right amount of planning you can ensure that retirement is not just the end of your federal career, but the start of the next chapter of your life.